Procurement of Goods: Procurement methods and Procedure CA. Bhava Nath Dahal Public Procurement National Instructor

We discussed on procurement of goods Procurement methods Procurement cycle Concept of pre-qualification Concept of post qualification Single & two stage method Concept of Single envelope and two envelope system preparation of Specification for Goods preparation of Cost estimate for goods Procurement Procedure Direct purchase Emergency procurement User's Committee Nongovernmental organization Force account Sealed Quotation National Bid International Bid Catalogue shopping By Back Method Limited Tendering Lump Sum Method

Procurement Cycle Procurement Cycle is same in all cases of goods, works, consulting and other services Procurement Cycle 1. Procurement Plan Master Plan Annual Plan Collection of Requisition Cost estimation Set procurement method Set procurement agreement

Procurement Cycle 2. Identification of sellers Standing list Pre-qualification Post-qualification 3. Preparation of solicitation documents 4. Bidding or similar process 5. Evaluation of offer 6. Award process 7. Contract phase Procurement Cycle 8. Contract Management 9. Payment and final payment 10. Documentation and retaining documents 11. Feedback for future

Concept of Prequalification Concept of PQ Highly technical and complex assignment Core concentration with capable, strong and high-ranked supplier Time consuming but limited activities of procurement process Legality of PQ On the procurement as prescribed by PPMO as highly technical or complex or as fixed by Entity itself Process of PQ PQ notice Collection of PQ offer Evaluation of offered Shortlisting of successful bidder Biding notice (~ as post qualification) Receiving Price-bids Evaluation of bids Awards Contract Contract managment

Concept of qualification What is qualification As prescribed by buyer, Inter alia includes detail evaluation of Qualification of or number of employees or workers Level of equipment (capacity, number) Experiences on similar/other success Financial capacity (historical or future) Bid capacity (current) …….. What is eligible bidder Above in general level (except bid capacity) Pre-qualification Post-qualification Minimum-qualification (standing list) No-qualification (standing list)

Prequalification Benefits of PQ Risk of PQ Critical points on PQ: Obtains highly qualified supplier Less complexity on Price-bid evaluation (technical as well as financial bid) Risk of PQ A good ground for collusion Same as limited tendering Almost cases, it creates disputes. Less competitive procurement method Discourage domestic bidders Critical points on PQ: Change of substance of corporate structure (restructuring) Joint venture of short-listed parties (in this project or elsewhere) Subcontracting each other (in this project or elsewhere)

Concept of Post-qualification Bidding process with all eligible bidders Fixation of eligibility at the beginning Evaluation of bids of eligible bidders At the end of evaluation, evaluation of qualification of the successful bidders with Lowest Evaluated priced bid (L1). If L1 bidder seems the required qualification has not with it, evaluation and award to L2. Benefits of Post- qualification Risk on Post-qualification

Single State or Two Stage method Single Stage Bid Concept PQ based Single-stage Post qualification based Single –stage Single-envelop single-stage Double-envelop single-stage Two Stage Bid For highly technical and unpredictable procurement on which buyer has less than minimum knowledge First stage- offer for specification, bid document and terms of contract Second stage- cost estimation and other regular offer of bidding process International practice Vs Sec. 28 of PPA

Single State or Two Stage method Single Stage Bid Concept PQ based Single-stage Post qualification based Single –stage Single-envelop single-stage Double-envelop single-stage Two Stage Bid For highly technical and unpredictable procurement on which buyer has less than minimum knowledge First stage- offer for specification, bid document and terms of contract Second stage- cost estimation and other regular offer of bidding process International practice Vs Sec. 28 of PPA PPA is silence on many point on it

Single envelop or double envelop Single envelop bid Both technical and financial offer in same envelop On the opening, price disclosed on ‘Read aloud’ basis Price taken in the fifth process of evaluation Benefits Risks Double envelop bid Technical and financial offer in different envelop Opening of technical offer first. Safe keep of priced envelop until public opening. Benefits Risks

Preparation of Specification for goods Goods based on objective specification Example: in regular case- ६४ पेजको रजिष्टर राम्रो खालको Specification as prescribed by PPA Register having 64 pages, paper size- 8.5”/11.5”, paper thickness 80 gsm, card-board hard-cover having thickness at least 250 gsm, recyclable All the technical features to be incorporated into specification. Size, dimension, weight, …. Measurement must be in form of industry specific (e.g. paint industry uses % of mixes like 20%R, 60%W, 20%G instead of pink color) All the measurement must be with range, if possible (e.g. at least 80 kg, from 80-85 gsm). If the requirement is fixed with size, dimension…, then only real size has to be mentioned.

Preparation of Specification for goods Who prepare specification Technical person of buyer Entity chief is responsible for it. When to prepare specification After collection of requisition and before cost estimation Update of specification Not required as cost estimation; however, entity may review on need Source of specification Based on industry of specific goods under procurement Domestic industry or foreign industry National standard will be one source, if coincide with requirement ISO, in most cases are not specification for procurement (or required to mix many ISOs for single goods under procurement)

Preparation of cost estimation for goods Cost estimation is based on specification For the date of cost estimation: Quantity: as required Rate Cost estimation = Quantity * rate In each year, this cost has to be updated on rate. Basic Rate for cost estimation (PPR 11) Procurement of goods having similar specification by same entity or other entity within district during this year or earlier years Current market price (local) Current market price (national or international) plus transportation Price fixed by Commerce and Industry, if any

Preparation of cost estimation for goods Problems on estimation Price adjustment in earlier procurement rate. Non-availability of current price Source of price is vague (so creates disputes) PPR is silent on differences in prices for 4 different sources Good Practices For earlier prices- adjustment of inflations Averaging the prices from different sources Published price is more reliable than enveloped price

We discussed on procurement of goods Procurement methods Procurement cycle Concept of pre-qualification Concept of post qualification Single & two stage method Concept of Single envelope and two envelope system preparation of Specification for Goods preparation of Cost estimate for goods Procurement Procedure Direct purchase Emergency procurement User's Committee Nongovernmental organization Force account Sealed Quotation National Bid International Bid Catalogue shopping By Back Method Limited Tendering Lump Sum Method

Procurement Procedures: Direct Purchase PPR 85 Unique goods and services Single sourced item Single producer-domestic Proprietary goods From Public entity G-to-G Small and non-recurring procurement (Rs.5 Lakh) Standing list (Rs.1 Lakh) PPR 82 Training or similar (Rs.5 Lakh) PPR 83 Cost and Qualification based selection (CQS)

Emergency Procurement PPA 66 Conditions Process- permission from one higher level PPR 145 Competitive or negotiation Process may shorten as required Why dispute on the earth- quake relief procurement

Users-committee procurement PPR 97 Cost estimation upto Rs 1 Crore including overhead, VAT, contingency and public contribution. Public notice by entity or request letter from UC. Agreement and advance (1/3rd of contract amount) All bills must be passed by UC and submits to entity. Public notice of expense and public audit No heavy equipment (exception exists) Black-listing of UC

NGO procurement PPA 46 PPR 99 Mainly training activities Public notice by entity or request letter from NGO. Minimum cost basis Other processes as similar to sealed quotation.

Force Account PPA 8 PPR 98 Where Goods procurement – under usual procedure Only labor part is force account No standard documents- practiced by usual procedure Regular repair, cleaning, regular small works

Sealed quotation PPA 40/52 PPR 84 Goods/works/service – Rs.20 lakh Medical supplier- Rs. 50 lakh A competitive procedure Single bid process Validity -45 days BG validity- 75 days At least 3 quotation requires- otherwise renotice Benefits

National bid PPA 8 Most common method of competitive procurement All the provision of bidding is applicable Standard bidding document by PPMO Payment in Nepali Rupee Dispute resolution in Nepal Foreign person may lodge the bid

International bid PPA 8 Common method of competitive procurement for large contracts All the provision of bidding is applicable Standard bidding document by PPMO/FIDIC Payment in agreed currency Dispute resolution agreed place Domestic person may lodge the bid

Catalogue shopping PPA 8 PPR 31B Competition of price amongst supplier on the published price on webpage or in catalogue. Publisher may be- either producer or authorized agent. Only the eligibility of bidder is producer or authorized agent, remaining procedure is same as other bidding. May be multi-year Two-stage bidding Lodging catalogue Price offer PPMO yet to prepare standard bid document

Buyback method PPA 8 PPR 31D Procurement of goods having hazardous impact with the condition that will return after expiry and new procurement First bid is purely competitive method, from downward stage- it goes to single source PPMO yet to prepare standard bid document

Limited tendering PPA 8 PPR 31C 31E Competition amongst limited producer or suppliers (almost 3 producers/suppliers) Upto Rs. 1 billion- domestic competition A competitive procedure with producers/suppliers No-multi-year benefit PPMO yet to prepare standard bid document

Lump sum Discount method PPA 8 PPR 31A Competition on rate of discount on rate on cost estimation A competitive procedure under national bid (may be multi-year) PPMO yet to prepare standard bid document